The O'Malley administration released a report yesterday that concludes slot machines are necessary to protect Maryland's racing industry, giving the strongest indication yet that the governor intends to make expanded gambling part of his plan to close a projected $1.5 billion budget gap.
Labor, Licensing and Regulation Secretary Thomas E. Perez made the finding after visiting racetracks in Pennsylvania, West Virginia and Delaware, examining revenue statistics, and counting Maryland license plates in their parking lots.
"Tens of thousands of Marylanders are voting with their feet and traveling to West Virginia and Delaware to play slots," Perez wrote in his report to Gov. Martin O'Malley. "By not having slots, Maryland has already left hundreds of millions of dollars in potential general fund revenue on the table."
His findings dovetail with the position that O'Malley has espoused for two years: Maryland should have slots at tracks such as Laurel Park and Pimlico to protect the industry, the jobs that depend on it and the open space created by horse farms.
But the report, which O'Malley shared last night with Republican lawmakers, marks the governor's first concrete step in taking the lead in a debate that has consumed Annapolis since the 1990s.
"The report underscores what many of us already felt instinctively, which is that the racing industry and horse-related agriculture and all the jobs and land associated with those things are really getting hurt by the racing industries in the states around us that have slots," O'Malley said last night. "The amount of dollars Marylanders are taking out of state and putting in machines in Delaware, West Virginia and Pennsylvania are dollars we'd like to keep in Maryland."
The evidence and arguments presented in the report are familiar to both sides in the slots debate and elicited predictable reactions. Backers of slots saw a solid case for why they are needed, and opponents saw questionable figures and spurious conclusions.
"He compiled a very objective report to the governor, and the statistics indicate that we missed the boat five years ago and continue to do so," said Senate President Thomas V. Mike Miller, a Southern Maryland Democrat who is the General Assembly's strongest slots supporter.
Aaron Meisner, an anti-slots activist from Baltimore, said: "This is just the latest pulling numbers out of the hat exercise, but there are no new arguments here and no solutions to the real issues."
The 19-page report, which O'Malley's top aides distributed to legislative leaders yesterday, briefly discusses the impact that slots could have on Maryland's budget woes.
Perez, whose agency regulates horse racing, cites estimates from state and industry sources to conclude that Marylanders are spending $350 million to $400 million a year playing slots in West Virginia and Delaware, adding $150 million annually to the states' coffers.
However, most of the report focuses on the relationship between slots and horse racing. Perez cites industry statistics showing that average purses at thoroughbred tracks in those states, once far below Maryland's level, are now at or above those of tracks here. The same is true of wagering on horse races.
"The important point to take away from these figures is that they clearly show two industries that, before slots, were not competitive with Maryland," Perez wrote. "Then, over the course of 11 years with slots subsidies, they have been able to create competitive, or better, purse structures.
"The basic equation of the horse racing industry is this," Perez wrote. "The fatter the purse, the better the quality and quantity of horses that run, making for more interesting races. More interest in races attracts more bettors and larger handles."
However, industry statistics show little correlation between the higher purses that West Virginia, Delaware and Pennsylvania offer and greater interest in racing.
Betting on live races in Delaware is down 40 percent since slots were legalized there. Simulcasting - the televising of races so bettors across the country can wager on them - increased handles in the state for a time, but that revenue has started to decline.
In the first six months after slots came to Philadelphia Park, horse betting declined by 20 percent.
Handles in West Virginia increased sharply earlier in this decade, as Perez notes in his report. But he does not take into account the advent of simulcasting in the state, which coincided with the increase. Even with slots, handles had been flat in West Virginia before simulcasting was adopted.
Christopher B. Summers, who heads the Maryland Public Policy Institute, a market-oriented think tank, said legalizing slots and subsidizing the horse racing industry are separate questions and should not automatically be considered together. "Subsidizing the horse racing industry is spending revenue, and slots is a vehicle to raise revenue," Summers said. "It really comes down to a great question of public welfare, which is: Should we continue to subsidize an industry, one that appears to be losing customers ... and can't stand on its own?"
In his report, Perez concludes that horse racing is worth saving because it provides economic and environmental benefits. A University of Maryland study from 1999 found that the industry had an annual economic impact of $600 million and directly or indirectly supported 9,000 jobs. Furthermore, he wrote, horse farms cover 685,000 acres, roughly 10 percent of the open space in the state.
"There are not many industries that provide such a wide range of benefits in terms of employment, economic development and the preservation of open space," said Joseph A. De Francis, CEO of the Maryland Jockey Club, who reviewed the report yesterday.
Beyond demonstrating that the governor considers slots and horse racing to be linked, the Perez report provides little clue as to how O'Malley will approach the issue.
Perez did not discuss the conflicts that have led to past stalemates over gambling, such as locations for slots parlors, methods for distributing licenses, aid to communities affected by slots, and distribution of revenue.
House Speaker Michael E. Busch, an Anne Arundel Democrat who has been the chief opponent of slots in the Assembly, said he appreciates Perez's points about the problems faced by Maryland's horse industry but found little new in his analysis.
For a bill to succeed in the House, it would have to meet a number of conditions, Busch said, such as preventing the "unjust enrichment" of track owners, providing an auction process for licenses that gets the best deal possible for the state, minimizing the impact on communities and maximizing state regulatory control.
The House passed such a bill three years ago, Busch said, adding that he sees little enthusiasm for the issue in his chamber now.
"If Governor O'Malley wants to go in this direction, we should learn from what happened in Pennsylvania and West Virginia and other states so Maryland can have the best deal it can possibly have," Busch said.
Miller said yesterday that he will follow O'Malley's lead in finding a compromise. "We've studied the issue, and it's just a question of the will among some important individuals to pull the trigger," he said.
Del. Anthony J. O'Donnell, the minority leader from Southern Maryland who was briefed by O'Malley on the report last night, said there is potential for common ground between Republicans and the governor on slots.
"I think there is a growing recognition that raising $1.5 billion in new taxes or cutting $1.5 billion of the state budget cannot be the solution by itself," O'Donnell said. "The only other proposal on the table is slots. In very real terms, I think there is growing recognition that it has to happen."